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The Smartphone Wars: AT&T CEO reveals all

Well, well, well. A hot-off-the-press AP article, “AT&T CEO: We’ll push Android phones”, finally sheds light on the vexing question of why AT&T let Apple out of its exclusive a year early. It’s just stuffed full of revelations, but the implication the reporter fails to draw is bigger than any of the fascinating facts on exhibit.

AT&T letting the iPhone go looked mysterious because most of us – including Android fans like myself – accepted the premise that the iPhone is a significant marketing advantage for any carrier that has it, generating lots of premium business (high-margin sales to relatively price-insensitive customers). But now it looks like that’s not true – and furthermore, Apple may have been pushed out of its exclusive as much as it jumped.

From the article: “AT&T [...] signed up a net of just 400,000 new customers on contract-based wireless plans in the last three months of last year. It was the lowest quarterly number in at least five years.” This is pretty shocking in general, and has very specific implications about the state of the iPhone brand. The first Christmas season after the iPhone 4 release should have been a banner quarter for the product, with heavy Apple and AT&T marketing leading to a healthy bump in new AT&T sales. But this didn’t happen.

We already knew that AT&T has plans to introduce a dozen Android phones over the next year. Now its CEO says it will be marketing them aggressively. The implication is clear: AT&T believes joining the Android army will boost its flagging new-contract numbers. (One may safely guess that this is also a bid to increase profit margins by lowering the per-phone cost-of-goods.)

The article says “the iconic [iPhone] has lost much of its power to attract customers from other carriers”. Evidently; viewed in that light, that 400K new-contracts number, on volume of 4.1 million iPhones activated, is a disaster. Best case for Apple, if those were all iPhones, would be that the market that AT&T can reach is about 90% saturated, with sales of the device coming almost entirely from repeat customers. Since we know AT&T’s product mix isn’t all iPhone, the actual saturation percentage is higher and number of new iPhone customers is lower.

My mind is just boggling. Far from scoring a coup, Verizon may have just bought the biggest bag of substanceless hype and wind Steve Jobs has ever peddled while AT&T snickers behind its hand. The iPhone brand is in worse shape than I thought was even possible. And the implications of that are huge.

First: We can expect Verizon’s iPhone sales to be anemic. A bit of arithmetic applied to this chart tells us Verizon has been churning about 93M * 1.42% * 3 = 396K customers a quarter – about the same as that deadly 400K. The smart way to bet is that most of Verizon’s potential Apple customers decamped to AT&T long ago and are part of that 90% saturation.

Second: Anybody betting their dollars or reputation that Apple’s “superior user experience” would guarantee it perpetually increasing market share just took it on the chin, hard. AT&T’s CEO has just told us as plainly as a CEO ever does that that theory is busted. AT&T’s bet is on Android now.

Third: The iPhone is in deep trouble. 4.1 million activations looks like a lot, but any product manager will tell you that in a market moving as fast as smartphones, a product with less that 10% new customers in a quarter is usually only a few quarters from market share decline. Comparing this to the 600% quarter-over-quarter growth rates Android has been posting just doesn’t look good.

Over a year ago, when Android was shiny-new and I was just beginning to analyze the smartphone market, I predicted that the ubiquity game would beat the control game. This has since been happening at a rate even my boldest predictions couldn’t keep up with, and the accelerator pedal just got another stomp.

UPDATE: The article allows us to total up AT&T iOS activations (counting iPads) at about 4.5M for the quarter. Google says it’s activating Android devices at a rate of 200K * 90 = 18M per quarter. Conclusion: Android is outrunning iOS at a 4:1 ratio.

UPDATE2: UPDATE was incorrect. First, turns out it’s 300K or 24M Android devices per quarter, but that’s a worldwide number rather than a U.S. one. So to compute the actual ratio we need to know the percentage of Android sales going overseas. If it’s 33% or less – which seems likely based on press reports of “more limited” overseas sales – 4:1 or more is still right.

172 thoughts on “The Smartphone Wars: AT&T CEO reveals all”

The article says “the iconic [iPhone] has lost much of its power to attract customers from other carriers”.

That’s probably more because of AT&T’s shitty network than anything else. Pushing Android isn’t gonna get their new-activation numbers up unless they get their backhaul act together.

I’m a happy Sprint HTC Hero owner now, but a year ago, when I was an AT&T customer, I was seriously mulling picking up an iPhone. My choice was to either go with the coolness of the iPhone and endure AT&T’s shitty, overpriced data package, or go with the almost-as-good Android and get a better data network in the bargain. I went with Sprint and Android. I suspect there are many others like me in this regard.

Now we’re past that quarter. AT&T no longer has the ability to try to pry customers loose from Verizon with an iPhone, so they have no reason to try to do that any more. If we assume that the shape of the curve of Android adoption inside AT&T was similar to the shape in the outside world, except for being skewed a bit by their iPhone exclusive, then the known android curve, plus that 41% of preexisting customers choosing Android over iPhone in the third quarter inside AT&T, plus AT&T losing the exclusive, are really all the data you would have needed to confidently predict the current result.

Obviously, the reason AT&T didn’t care about losing the exclusive is that they can see the trend data a good 3 months before anybody else.

Of course, I have TJL’s provocative bullshit pronouncements to thank for the fact that I even got off my duff and thought about it that hard 6 weeks ago :-)

@Jeff Read:

That’s probably more because of AT&T’s shitty network than anything else. Pushing Android isn’t gonna get their new-activation numbers up unless they get their backhaul act together.

The network is a separate issue. In reality, AT&T saw the writing on the wall, and Android was already on a path to overtake iPhone inside AT&T. A cheaper phone, that allows the network the illusion of more control, on a steeper price decline ramp, that’s more popular with the punters. What’s not to like?

>Of course, I have TJL’s provocative bullshit pronouncements to thank for the fact that I even got off my duff and thought about it that hard 6 weeks ago :-)

Yes, you were ahead of me on the bit about saturation. I thought your logic was sound, but found the conclusion implausible enough to suggest there was a hole in your assumptions somewhere that neither of us was noticing.

>Obviously, the reason AT&T didn’t care about losing the exclusive is that they can see the trend data a good 3 months before anybody else.

Quite.

>Android was already on a path to overtake iPhone inside AT&T.

I think this is right. That 4:1 ratio in device activations is pretty telling; because this was after iPads started shipping but before volume Android tablets, it would actually understate the disparity in smartphone activations.

>That’s probably more because of AT&T’s shitty network than anything else.

You fail at logic. If backhaul rather than iPhone were the problem, AT&T would have held on to the exclusive and put money into network upgrades rather than spending NRE to field a dozen Android devices.

What keeps me awake at night is worrying about the effects of bufferbloat on all cellular networks. Am I the only one that can’t make out a word people are saying on either AT&T or Verizon? Am I just going deaf?

I’ve devolved to using my (android/verizon) cell phone as a music player, gps mapper, and switch to skype on my PC for voice.

Doesn’t realize? Couldn’t be – they have to know their network utilization hour by hour in order to do least-cost routing.

As for “too expensive”, the net-present-value choice between NRE for products with a six month lifetime and buying more backhaul that you can amortize over your entire future revenue stream…well, I don’t have a real high opinion of MBAs and corporate planners, but this one is such a no-brainer that a flatworm couldn’t fuck it up.

Conversely, since they’re paying that NRE it means they know they have a problem more backhaul won’t solve.

I think he’s referring to increasing jitter in the network, which in turn requires the phone to increase it’s buffer size (up to a certain amount). Dave, while high jitter will cause data loss and subsequent noise, that shouldn’t have anything to do with your ability hear the other party (beyond that their audio simply doesn’t make it through the network, which would be obvious). Your phone probably either isn’t loud enough (had the same problem with ALL the Palm phones I’ve had) or it is over driving the speaker and distorting the other party (had this problem on 3 different Nokias on AT&T years ago). Or, perhaps, you need a hearing aid ;^).

Bufferbloat is what you get when you increase bandwidth and shove more data down the pipe without managing it better. There is also a FAQ on bufferbloat.

It’s a phenomenon I noticed doing performance and scalability testing on product lifecycle management systems a few years ago. In many cases, increasing bandwidth didn’t improve performance, it made it worse because of multiple large buffers getting filled up. Without some kind of active queue management, adding bandwidth, which was viewed by management as cheaper than doing optimization, didn’t help and actually made performance worse. (They ended up re-architecting things after we proved that)

After doing that – and seeing the same sort of tcp traces as he here and in Nicaragua… I ran around reducing my dma tx buffers (using ethtool to cut my openrd’s driver queues from 256 to 20), patching my wireless drivers (patches for the ath9k on github – cutting from 512 to 32) and reducing txqueuelen to the bare minimum.

The netanalyzer paper was excellent (but I can’t find the link right now)

Jim Gettys has a presentation that talks to all this stuff coherently that should be live on the web shortly at http://www.bufferbloat.net/documents/1 (site isn’t live yet, requires registration)

Dark buffers seem to be breaking TCP/ip nearly everywhere. I surmise that the early problems experienced by iphone users on AT&T’s network are more general than people assume.

(This is a good crowd for this sort of discussion, but I don’t want to hijack the thread… too much. (I otherwise agree with esr’s analysis of the cell phone market – it’s just my worry that the data component of the cellular network may well collapse that keeps me up at night)

QUESTION: Could you talk a little bit about your strategy going into 2011?

RESPONSE: I feel fairly confident we’re going to be able to grow over the course of the year through the disruption. And there’s a couple of reasons for this. One of them is, if you just look at the fourth quarter, it was no secret that the iPhone was going to be available on a competitor’s network … In spite of that, we had our second-best (higher-end phone) sales quarter ever. iPhone sales continued to be very strong in the fourth quarter, in fact, it was among the best quarters we’ve ever done as well. We sold 4 million iPhones. That just kind of gives us some confidence in terms of customer loyalty to the network.

It may be rocky in the beginning of the year, kind of volatile, hard to predict, but we think as we work through it and the market stabilizes, we’ll be able to grow through it.

The other thing is, is the sales mix will change this year. We’ve not been very aggressive in the Android portfolio and we’re bringing Android into the mix very aggressively this year. You’ve seen some of the devices that we’ll be bringing in. So we’re going to be a heavy participant in the Android market this year, and so you’re going to see a significant shift in mix.

And then you add Windows 7, and (BlackBerry) products are actually starting to do very well, and getting a lot of traction in the market and in our sales channels. We think we’re actually going to have a nice mix shift and do quite well in those areas.

And then, last, we’re really starting to feel good about the network situation. We’re making a lot of progress here, and as I commented in the opening comments, we had a significant clearing of backlog from our vendors in December. We were having some serious capacity constraints in key markets. And we really saw the backlogs clear, and we spent the last 45 days literally just bringing capacity online in a rather dramatic fashion, and we’re seeing those numbers move.”

“It may be rocky in the beginning of the year, kind of volatile, hard to predict”, doesn’t sound (to me) like a man who’s decided that Android will be more profitable.

Immediately after he says he’ll bring more Android phones to the market, he says that Windows 7 and RIM are actually starting to do very well. This is the voice of a man who knows he’s lost something precious and rare.

The low number of new contracts demonstrated that even though AT&T activated a lot of iPhones — 4.1 million — the iPhone has lost much of its power to attract customers from other carriers. Since it launched in 2007, the iPhone has been driving millions of high-paying subscribers to AT&T, and it now earns more per subscriber than any other carrier. If its per-subscriber revenue was in line with Verizon’s, AT&T would pull in $7.7 billion less every year.

But now all those folk who couldn’t stand the thought of being on AT&T’s network have a choice, so they stopped capitulating.

Latest numbers paint a very different picture:
“The carrier said it added more than 2.8 million wireless subscribers in the fourth quarter of 2010, its biggest increase ever. It also had 8.9 million wireless subscriber additions for all of 2010, another record.”

I’ve been a Verizon customer for almost a decade, and they were my first cell provider, but I’m in the process of going full-VOIP.

I’d been meaning to cancel my Verizon cell plan for months. A day after the announcement of iPhones availble through Verizon, I went into the brick-and-mortar store, expecting it to be packed. It was dead-empty. I was in-and-out in twenty minutes. My fiancee saw me on IM thought I’d gone straight home.

Fiancee: Now you’ll _never_ be in and out of Verizon before 5PM.
Me: Actually, I’ve been there and through…

See to me, this “announcement” is expected. Look at it this way, up until now, AT&T had the iPhone, that was their “killer feature” so to speak. Now that they aren’t exclusive, they have to make noise about their “new” strategy, because they would look stupid continuing to push the iPhone as if they were still the exclusive carrier. Read it as a prediction of the end of the iPhone if you want (sometimes I get the impression you would read anything other than a join AT&T and verizon outright drop of android as a prediction of the end of iPhone), but that’s not what I read. I read a business telling their investors what they’re going to do now that they’ve lost a significant competitive edge.

“The carrier said it added more than 2.8 million wireless subscribers in the fourth quarter of 2010, its biggest increase ever. It also had 8.9 million wireless subscriber additions for all of 2010, another record.”

That’s total subscribers. Vending machines, kiosks, power meters, subscribers through other companies, etc.

AT&T continued to grow its base of integrated device subscribers. More than
7.4 million postpaid integrated devices were sold in the fourth quarter, including
the second-largest quarterly number of upgrades in the company’s history.
Integrated device sales included 4.1 million iPhone activations. More than
80 percent of postpaid sales were integrated devices. (Integrated devices are
handsets with QWERTY or virtual keyboards in addition to voice functionality
and are a key driver of wireless data usage.)

So that says that 55% of all smartphones they sold (“integrated devices” in AT&T-speak) were iPhones. But remember that they were still offering really cheap upgrades to iPhone 4 to lock customers in for 2 years before Verizon got the iPhone. The quarter before, when the iPhone 4 first came out and they were really pushing iPhone 4 upgrades, 65% of all smartphones they sold were iPhones. The trend is clear. Most people who really want an iPhone already have one. Also, I haven’t done the math this quarter, but last quarter, most of those were upgrades from iPhone 3s. We can look at the comscore report and figure this out more closely, but I think the low number of net adds compared to the number of iPhone 4s sold will indicate the same dynamics were in play in the fourth quarter — lots of iPhone 3 -> iPhone 4 upgrades, but also lots of upgrades to non-iPhone smartphones.

BTW, if in Q3, 65% of postpaid smartphones sold were iPhones, and in Q4 (which BTW contains Christmas, when you give the expensive gifts) 55% of postpaid smartphones sold were iPhones, that trend says that at this very moment, AT&T is selling more “other” smartphones than iPhones in the postpaid category. This wasn’t true the last two quarters. And, of course, they’re probably selling a lot of Android prepaids, and probably zero iPhones prepaid.

The article allows us to total up AT&T iOS activations (counting
iPads) at about 4.5M for the quarter. Google says it’s activating
Android devices at a rate of 200K * 90 = 18M per quarter.
Conclusion: Android is outrunning iOS at a 4:1 ratio.

In its Q4(CY) earnings release, Apple said that it sold 16.24 million
iPhones and 7.33 million iPads. A bit of math will show another
45.2 million iPod Touch units sold during the quarter. I count
68.77 million units for Apple in Q4.

Second, AT&T is US-only. You can count that AT&T number as “all
iPhones sold in the US in Q4″, to be sure. But you can’t directly
compare Android’s world-wide activation rate (200K/day, or 18M/quarter)
to AT&T’s US-only rate.

What you *could* do, if you cared to, would be to take Apple’s
stated sales of iPhone from it’s latest investor call, (see above)
and compare that to Google’s claimed rate of Android activations.

At Google’s Android OS 2.3 Gingerbread release event in early
December, Google noted that the then current pace of Android’s
weekly device activations was 1.5 million, or just over 214,000 per
day. (But note that Andy Rubin had just said 300K/day. WTF?)

That compares with 230,000 iOS devices per day, as reported by Apple
back in September. But Google’s claimed Android activation growth
is less than 8 percent higher than the number Google cited in August,
indicating a plateau in the growth of new Android activations after
a summer of impressive growth figures that once swelled by 60 percent
within just a month.

In the Android world however, the variety of hardware makers capable
of shipping Android-based phones makes it more difficult to immediately
count how many phones are being sold collectively. Google has instead
preferred to publish activation numbers.

Throughout 2009, the pace of Android’s activations nearly doubled
from 30,000 per day in the spring ramping up to 60,000 new mobiles
per day in February 2010. Rapid growth continued in 2010, enabling
Android to hit 100,000 activations in May and 160,000 in June. By
early August, Google was claiming 200,000 Android activations per
day.

Speaking at Apple’s iPod event in early September, Steve Jobs took
issue with Google’s activation numbers. Recapping iOS device sales
at the event, Jobs told the audience, “People are throwing around
a lot of numbers as to how many of their operating systems they’re
activating per day. We are activating a little over 230,000 iOS
devices per day. And that’s new activations.”

Taking a shot at Google, Jobs added, “we think that some of our
friends are counting upgrades in their numbers. If we counted
upgrades in our numbers, they’d be way higher than 230,000. But we
think the most appropriate way to count them is just new activations.”

Google responded by saying that its reported Android activation
numbers “do not include upgrades and are, in fact, only a portion
of the Android devices in the market, since we only include devices
that have Google services.”

Google’s latest December number of around 214,000 daily activations
(I’m going to ignore Andy Rubin’s 300K number, given that Google
is likely to be more accurate when speaking to the financial press)
is not only below Apple’s figures from September, but also only
slightly better than it had claimed back in August, despite a new
flurry of Android smartphones and new tablets such as the Samsung
Galaxy Tab.

Regardless of any of this, I don’t conceed your oft-repeated assertion
that the first platform to 50% market share will wwin. We’re still
early days, and there is a lot of shift yet to come. As an example
from nearly 100 years ago, The Model T was a massive hit, dominating
the market for over a decade: Wikipedia says:

“By 1914, [...] Ford produced more cars than all other automakers combined.”

“By 1918, half of all the cars in the US were Model T’s.”

and

“Model T production was finally surpassed by the Volkswagen Beetle on February 17, 1972.”

The Model T was hugely dominant at one point, but General Motors
led global sales for 77 consecutive years from 1931 through 2007.
Things change.

Care to go out on a limb and make a prediction for Verizon iPhone sales? From your post, it sounds like you don’t expect much. My WAG is 3M units on Verizon before EOQ, with continuing strength as more price-senstive consumers wait until their contracts end to switch. Look at the iPhone/Android ratio on AT&T.. Why wouldn’t we expect approximately the same ratio eventually on Verizon?

I know plenty of Android users who are Android users because they can’t use AT&T reliably. My wife carries a Sprint Android phone and an iPod touch. You can bet that she’s planning to swap the Android phone for an iPhone asap.

As the previous poster mentioned, your calculations are fatally flawed, as you are comparing US iPhone sales to worldwide Android sales.

Apple expects to sell 21 million iPhones in the current quarter. Of course, 15 million of those are CDMA phones (the new ones), and 6 million of the CDMA phones are for Verizon. So there is potentially some slop in those numbers.

But, Android will do more than that without any further growth at 300K units/day, which is 27 million units in the quarter.

I sincerely doubt very much of Android’s volume is in tablets yet, so most of that 27 million + growth is in phones, which, BTW, Eric has been discussing. Not tablets. Not media players. Phones.

You may be right that Eric conflated US and global numbers in his final, possibly hurried, update. But while it may not be by a rout 4:1, Android is certainly going to be outselling iOS in phones this quarter.

@srh:

Your 3 million WAG is only half of Apple’s 6 million WAG. Probably quite supportable, but it will still be a huge disappointment to Apple.

Meanwhile, back in Apple-ville, they’re preparing to take over the
world of commerce via NFC.

Eric crowed about NFC in the newest Android phone, but Google’s
demo of NFC in the phone as the way to pay reminds me of a demo of
3270 emulation terminals just as we were breaking away from the
mainframe, or modems as a way to connect to the Internet, new
technology imitating the old paradigms rather than thinking through
how the new paradigm can really be different.

The move to mobile payment will be far more disruptive, and will
lead to more innovation, than people are imagining now.

The most advanced country on earth when it comes to mobile payments
is Kenya. About 50% of the population handles about 20% of GDP by
mobile phones these days. The social consequences are profound, and
operator Safaricom became the biggest bank in East Africa in the
process.

Part of the reason mobile banking is so succesful in Kenya is that
the majority of the population is not eligible for a bank account,
let alone a credit card. Thus they are actively looking for an easy
alternative to carrying around lots of bank notes.

Mobile payment also has some really deep roots in Japan.

In contrast, the West has solved this problem a while back with its
existing banking and credit card system. That system doesn’t really
work very well on the Internet, but we’ve all grown used to that
situation and haven’t really looked for solutions.

The Android Market will get operator billing pretty soon, though
only on AT&T and T-Mobile, and even then, only with a broken
interface:

AT&T Android users can now easily charge their Android
Market purchases to their monthly accounts with only a few clicks.

“Only a few” is too many clicks. Two is the correct number: the
click that says “I want to buy this,” and the click that confirms
tbe payment.

Independent of operator billing, using phones should massively cut
down on credit card fraud. If your credit card is a fully-functional
computer that can verify its owner interactively, then one can use a
different “credit card number” for every transaction… And we’d no
longer be in this silly situation where merely knowing a 16-digit number
(plus a guessable expiration date and zip code) enables people to
impersonate others in purchases.

Now imagine a world where people could use iTunes as a de facto
bank account, it could transform Apple from a technology company
into one that deals with financial transactions, too, and that could
take it to a whole new level as an organization.

Think about what would happen if Apple were getting a small piece
of every sale from its NFC-enabled phones and using iTunes as a
payment channel. Now consider if Apple offered every merchant a
reader for free to get it on board. Apple could come in well under
the exorbitant fees credit card companies charge merchants and still
make a ton of money in the deal.

It could have the potential at least to put Apple in a league with
PayPal or the credit card companies.

Of course, it’s likely these companies would align with competitors
such as Android to answer Apple, and the a whole new war for transaction
fees would be on.

Now, before you go and state that Apple is ‘responding’ to Google’s NFC in
the Nexus S, be aware that Apple was making key hires in the space before
Google announced it’s Nexus S phone.

Apple hired Benjamin Vigier over last summer as a “Product Manager” for the
company’s “Mobile Commerce” unit according to his LinkedIn profile.
His career in mobile spans all the way to 1997 where he was part
of the team that invented Java for mobile phones or as we all know
it: J2ME. Then in 1998 he did some work for Visa, developing the
first version of Java’s Global Platform Device Framework. After the
dotcom crash in the early part of this century he became a consultant
and one of his clients was French operator Bouygues Telecom. There
he was leading business development projects based around SIM cards,
NFC and RFID chips, DRM, and more. Later he eventually joined
Bouygues Telecom where he lead the team that was in charge of the
operator’s Near Field Communication strategy.

In 2006 Benjamin joined SanDisk where he was responsible for mobile
commerce and NFC related activities. Note that SanDisk has yet to
release any NFC based devices, at least as far as I’m aware. He was
also wheeling and dealing with operators all around the world to
get them to bundle SanDisk’s products in their devices.

And finally, his last role before becoming one of Steve Jobs’ slaves,
was at mFoundry, who you may not be aware of by name, but you almost
certainly know of their work: the Starbucks iPhone application and
Paypal Mobile.

So the guy has some deep roots in NFC and mobile payment.

Apple also has a number of patents in this space that reach back
to the earliest days of Android and iPhone. Apple patent 20,100,082,784,
which was filed in September 2008 and published last April, is
called “System and method for simplified resource sharing” and
that’s exactly what NFC enables.

At its most basic, imagine seeing a poster for a new single – you tap your iPhone
against the poster and get a message from iTunes Music Store asking you to
confirm, with the music delivered once you have done so. Easy, right?

Nokia has a filed (but not granted) patent that seemingly covers this, though
it enables payment via premium message billing (high-cost SMS), allowing a handset
vendor to directly receive payment, rather than dealing with operator billing.

Still, I can see Apple making huge moves on both movie ticket sales and music sales
under the ‘iTunes’ branding.

Android still doesn’t have a music store. Perhaps Amazon will get it done.

Yes, I know you’re very developer-centric. But from the perspective of insuring that Apple doesn’t have a total lock on shiny things that are easy to pocket and that can tell you about how sucky the nearby restaurants are, tablets don’t cut it, and iPads don’t (usually) cut it.

I think expecting a lot of people to buy phones solely because they can be used in place of credit cards in a few locations that invest the extra money to be able to use the phones that way are going to be sorely disappointed. I can’t figure out why I desperately need my phone to save me from two pieces of plastic that I carry in my wallet (which aren’t the only things there), and I’m a techie. Don’t expect the great unwashed to care at all, or even know.

Frankly, tell most people that “Yes, but when you use your cell phone it’ll also pester you for a password!” and they hear “This will make buying things more annoying!” I don’t see a big pent-up demand for credit card security. Maybe there ought to be, but crap, I can’t even convince my fellow programmers to properly escape their HTML and I’m supposed to think there’s going to be a mass move towards this technology because of all the security-minded consumers out there? Nobody cares until its too late.

> But from the perspective of insuring that Apple doesn’t have a total lock on shiny things that are easy to pocket and that can tell you about how sucky the nearby restaurants are, tablets don’t cut it, and iPads don’t (usually) cut it.

Sigh. Another techie that doesn’t understand how the other 90% live. Go ahead and run apt-get upgrade yourself. Your mom isn’t going to do that. (Ob link: http://tinyurl.com/35vz96)

> I think expecting a lot of people to buy phones solely because they can be used in place of credit cards in a few locations that invest the extra money to be able to use the phones that way are going to be sorely disappointed.

Sigh. Yet another techie that doesn’t understand how the other 90% thinks or behaves.

“In Q4 we delivered solid performance across all three of our businesses, and generated outstanding cash flow. Additionally, growth trends in the mobile devices market continue to be encouraging. Yet, Nokia faces some significant challenges in our competitiveness and our execution. In short, the industry changed, and now it’s time for Nokia to change faster.”

Think about it: If Nokia adopted Android, it would instantly become the biggest Android player in the world. It would dominate Android and could have a big statement in how Android is developed. Sure, it would need to compete with other Android companies.

But it could be the biggest, maybe even the best.

If Nokia were, instead, to adopt Windows Mobile, it would not only become the biggest Windows Mobile player, but Windows Mobile could very well become (even if briefly) the largest mobile platform, if Nokia only does one thing:

Re-brands Symbian as Windows Mobile.

Think about it. Balmer has a problem, he has ZERO presence in the mobile world.

The CEOs of Intel, Microsoft, Nokia, NTT DoCoMo, RIM, SoftBank and Yahoo! will be making keynote speeches at Mobile World Congress, which will be held on February 14th to 17th in Barcelona. Elop is speaking to Nokia’s investors about the new strategy on Feb 11.

Both Microsoft and Nokia seem to be sailing in the same troubled waters. Both are stuck with a stagnant stock price, muddy future outlook and a foggy sense of direction. This is the first time in Nokia’s 145-year history that it has a non- Finn as the Skipper of its massive boat. No one yet knows whether Elop will be able to successfully steer Nokia out of stormy seas soon enough before investor patience runs out completely.

All that we know about Elop’s actions as of today after his being in office for over 100 days is that he has cut Nokia’s workforce by about 1800 jobs, postponed Nokia’s annual Capital markets day from December last year to February this year and kept a very low profile by keeping entirely mum about Nokia’s new product strategy, until today’s leak.

No one has yet heard a word about Elop’s only key new top management recruitment which he announced late last year, when he chose Jerri DeVard to become Nokia’s new Chief Marketing Officer. Ms Jerri was supposed to begin in her new job on January 1 this year. Nokia has never had a CMO ever before.

I think that the perspective of the 3 players can be summarized by their view of their uncaptured market: I would buy a if it weren’t for .

In the case of people who have limited service or a work calling plan, it’s an iPhone, if it weren’t for Verizon’s coverage/calling plan/subsidy/whatever. In this case, Apple thinks that they can get another bunch of sales by supporting another vendor.

In the case of people who like iEverything, it’s Verizon service, were it not for the lack of the iPhone. Verizon thinks that they’ll be able to attract a bunch of price-insensitive customers and basically take a chunk of the high-end market by offering it.

In the case of people who are cheap, it’s smart phone, if it weren’t for the high prices. Here is where AT&T can grow a lot. The iPhone commands a premium price. This makes it hard to offer 0-$100 subsidized phones. And even for the price conscious consumer, they can get some extra services/revenue as a result of increased customers. Given that there are many more people who are price-sensitive rather than price-insensitive, they can grow much more here.

Interestingly enough, all of the major players here think that they are going to win, and they are probably all right.

Think about it: If Nokia adopted Android, it would instantly become the biggest Android player in the world. It would dominate Android and could have a big statement in how Android is developed. Sure, it would need to compete with other Android companies.

But it could be the biggest, maybe even the best.

Thats what many of the android supporters said in The smartphone wars: Symbian Foundation folds its hand. How is Nokia’s touch screen capabilities? I don’t think i’ve ever seen or used a Nokia touch screen. Thats about the only place where I have any doubts about Nokia’s ability to revamp itself with android.

Symbian never appealed to me personally so Nokia going android would mean i’d (hopefully) get to use some of the interesting technology Nokia can come up with without the unappealing phone OS.

Funny, WBTE, just as Patrick Maupin I found myself also thinking that you’re doing a much better impression of the techie with the closed and very near horizon than anybody else here. Your homework is to stop people in the street until you find someone who has heard of NFC-based cell phone payment and actually wants it, before you try to explain it to them. Hope you live in a tech hub.

The US culture hasn’t been introduced to this idea so it’s new and different, the infrastructure takes a long time to roll out in a country like the US, and probably most damningly the idea has really been tried before and none of them have taken off, because we just don’t have a big enough problem in this area for there to be a demand. Long term, it is the future and it will happen, but I do not believe the debates occurring here are about where we’ll be in ten years, but rather where we’ll be in six months to a year. And NFC-based mobile payment won’t even be a blip on that timescale in the US. On that timeframe I expect to see maybe one installation of readers with the logos that would suggest that my cell phone would work with them; certainly I’m at a flat zero right now.

Here’s some good data that reminds us that the TAM for cellphones is still huge compared to the inroads either Apple or Android have made.

The contrast between Samsung and Apple is interesting. Samsung actually lost market share (0.1%) from Q3 to Q4, while shipping 12 million more units. Apple, of course, showed a stellar market share gain of 1.4% by doubling their shipments and selling an additional 7.5 million units.

Other interesting players are ZTE (who?) and “others”, who together account for 37% of the market, up from 31%. ZTE is matching Apple’s growth rate and selling more phones, while “others” increased cellphone shipments between Q3 and Q4 by 2.5 times Apples total shipments in Q4.

So sure, Apple’s growing faster percentage-wise than the big guys. But Samsung is still growing faster in absolute unit numbers, and “others” (which apparently includes HTC) is eating Apple’s lunch from the bottom. There are a lot of players in this market, and as the underlying silicon gets more powerful, Android becomes the only realistic choice for the OS for most of the players. The transition from dumb phones to smartphones has shaken up the market, and it will be interesting to see who the real winners are when the inevitable winnowing and consolidation happens.

This discussion about the US (relative) smartphone activation numbers does remind me of the earlier, 1990’s, discussion about the “best” cell phone system.

In the end it was obvious that GSM would “win” (as it did). Simply because it had a huge and fiercely competitive market (Europe). New and “better” handsets came out at a pace that could not be matched in the controlled market in the US. So now I understand there have been shipped worldwide 10 times more GSM handsets than the rest combined.

Android phones are a large, low cost and highly competitive market. Compared to the other, controlled and high price offerings with only a single supplier. As long as Android handset makers have to compete on price and features, their handsets will continue to improve. While Apple and RIM both compete with all the others, they have only a few handset types to offer. They can try out less ideas and have to supply everyone with a one-size-fits-all solution.

They cannot win. Only WP7 or MeeGo had a chance, if they could have recruited enough handset makers and networks early to actually make a difference. They didn’t, and now it is the 1980’s PC revolution by network effects all over again.

So sure, Apple’s growing faster percentage-wise than the big guys. But Samsung is still growing faster in absolute unit numbers, and “others” (which apparently includes HTC) is eating Apple’s lunch from the bottom.

Right, But that chart is showing total cellphones, both smartphones and dumbphones. Samsung and LG have been the top players in the feature phone space besides Nokia (which has a virtual monopoly in that space in Europe). That Samsung is still gaining market share at all, while LG, who hasn’t been keeping pace with Samsung in the smartphone space, is losing market share is rather telling, when you consider that dumbphones are losing share to smartphones. Sure Apple has 86% growth, but that makes sense because Apple is a very new entrant in the market, while Samsung has been in the market since at least the early 1990s.

“This is where Three UK’s ZTE Racer comes in: priced at just £99.99 ($158) or for free on various contracts, this Android 2.1 handset has quite rightly stolen the paper crown from the 845. But don’t let that price tag fool you — this 14.5mm-thick device still comes with a fairly modern 600MHz Qualcomm MSM7227 chipset (as featured on the Aria and X10 Mini / Mini Pro), garnished with a 3.2 megapixel camera (sans flash), HSDPA 7.2Mbps connectivity, 2GB microSD card, FM radio, GPS, Bluetooth, WiFi, and a Skype app for free Skype calls within the UK. There is just one caveat: you’ll have to live with a 2.8-inch QVGA resistive touchscreen. So, is this an immediate deal-breaker? Can the other features make up for this flaw? Read on to find out.”

Meego still has “a chance”. Even if Android sweeps everything before it in an orgy of mobile destruction, Meego will be there for those who don’t want a bar of Android because of Google (e.g. what’s RMS’ take?). The good news for Meego in that future is that all it would take is a token effort to port Dalvik and the libraries(Not a massive hurdle for open source -> open source) and Meego will be “99%” App compatible with Android. And that is what Linux took so long to get in the desktop space.

And you know what… I think that would be pretty damn good news for fans of Android as well.

Why on earth would you assume that AT&T voluntarily gave up their iPhone exclusive? Here is a much more logical explanation of these numbers: 1) People hate AT&T’s backhaul, and Apple knows this, so Apple was keen to end the exclusivity arrangement. 2) Once people got wind that they would soon be able to get an iPhone on Verizon, many stopped buying AT&T iPhones, and 3) AT&T has to start pushing Android aggressively because iPhone is no longer an exclusive selling point for them.

Who’s version is correct? An honest answer would be: we won’t know until we get Verizon’s iPhone sales numbers.

Odd then how the iPhone 3GS is $49 on AT&T as of Jan 6, 2011. Hmm… (ponder).

That makes perfect sense. AT&T is blowing out its inventory and Apple probably has little to say at this point about what AT&T charges, since the exclusivity deal is over. Furthermore, the iPhone 3GS is, at this point, substandard, outdated and outmoded, so it makes sense it’d end up in the same price bracket as, say, the leftover G1s.

Why on earth would you assume that AT&T voluntarily gave up their iPhone exclusive?

@Bennett:
How quickly we forget. Apple signed the exclusivity with AT&T because it had no other choice. Apple was not in a position to get any of the wireless providers to carry their new iPhone devices. Several other providers, including Verizon, turned them down before Jobs approached AT&T. AT&T always had the upper hand in that deal. The contract wording would definitely reflect that and Apple was never, at any point, in a situation where it could convince AT&T to let it out.

Apple does not now have, nor has it ever had the control of the smartphone market Apple fanboys seem to be fantasizing about.

As for Verizon’s iPhone sales numbers go, that’s already been covered: no one, not the analysts, and not even Verizon itself, expect the Verizon iPhone to do extremely well. From Verizon’s point of view, a very vocal minority of its customers asked for a smartphone, and Verizon delivered it. But it ain’t 4G, and what that means is that it is CDMA. Verizon’s iPhone customers are going to be very, very disappointed when they find out that they can’t simultaneously do voice and data.

Personally I think Verizon WILL have good sales numbers for the iPhone. But I also suspect that those numbers will largely come at the expense of AT&T, not Android (or RIM, or whatever).

I think it will be more about iPhone fans having the choice to get off of AT&T’s overcrowded network in places where that network sucks (very dense urban areas) without having to give up their phone of choice. Of course, that means that some of the bleeding may be staunched for Apple for the moment, but ultimately, it’s just a band-aid on a sucking chest wound; major surgery is required.

Apple needs a game changer if they’re going to continue to really compete with Android. They gotta put Google and Co. in their rear view mirror on the level the did with RIM, MS, and Nokia when they introduced the iPhone. I’m not sure they can do that, for the simple fact that it appears to me (and I’m not following this too closely, mind) that most of the bleeding edge development is now happening in the Android arena, I’m guessing because of the OSS nature of the platform.

If Apple plays their usual end-game here, they will let the iphone continue to slide while they build another gee-whiz product in another sector. They’ve historically found it easier to find another niche than to defend an existing niche when the competition drives prices through the floor, which we know will happen in the next 12 months in the smart phone market.

>I mean, you seem to be setting yourself up to look like an idiot in three months, if the Verizon iPhone numbers turn out to be good.

I generally find that if I make bold predictions based on careful analysis, I will be wrong very occasionally but right so often that the net effect is to make me look like a prophet. There is nothing mysterious about this, it comes from having a generative model of how the market works and the nerve to speak my predictions without waffling.

So far, since I begin writing about the smartphone market, I have called two things wrong: (1) I expected Google to push back actively against carrier skins and crapware, rather than taking the (largely successful) approach of waiting for market pressure to do it for them, and (2) I didn’t expect AT&T to release Apple fronm its exclusive before 2012.

On the other hand, I’ve called pretty much every other development correctly, including (3) anticipating to within a month when Android’s market share would pass Apple’s, (4) predicting that iPhone 4 would not reverse Apple’s relative decline, (4) predicting *well before launch* that WP7 would flop, (5) predicting that time-to-market pressure and customer pushback would force Android carriers to stop skinning and stop suppressing tethering and hotpot, and (6) predicting that MeeGo would entirely fail to get traction (I wish that one had been wrong…).

I could turn out be wrong about anemic Verizon iPhone sales, yes. But the downside of not having the nerve to make predictions that turn out to be wrong is not having the nerve to make predictions that turn out to be right, either…and I’m right more often than I’m wrong.

We’ve seen iOS go from iPod to Touch to iPhone to iPad. Next logical step is to put it in something with keyboard and mouse. Sell it to businesses/homes as workstation for the 95% who don’t need a real PC/Mac. Populate the app store with stuff they need, probably at relatively bargain-basement prices. And clean up on both ends.

Plausible? But it’s getting somewhat far removed from the “consumer gadget” that is now the mainstay of Apple.

I think people may be misunderstanding my point. I’m not arguing the hardware won’t be deployed in phones, I’m arguing that “nobody (in the US)” is going to see that as a bullet point and yell YES, THAT ONE! WOW!

@esr>There is nothing mysterious about this, it comes from having a generative model of how the market works and the nerve to speak my predictions without waffling.

The obvious problem with the above: If you wait until it’s obvious, it’s too late.

Ask anyone who has been successful trading stocks, this statement is quite accurate. It succinctly describes the phenomenon that a positive momentum position suddenly becomes ‘hot’ and people want it; at that point, it’s now obvious, and generally too late.

I think people may be misunderstanding my point. I’m not arguing the hardware won’t be deployed in phones, I’m arguing that “nobody (in the US)” is going to see that as a bullet point and yell YES, THAT ONE! WOW!

In the next 6 months to a year? No, you’re probably right. In the next 2-5 years? More likely. In the next 5-10? No question: definitely.

@J. Jay:

> As for Verizon’s iPhone sales numbers go, that’s already been covered: no one, not the analysts, and not even Verizon itself, expect the Verizon iPhone to do extremely well.

You’re delusional.

Instead of silly name calling, how about writing a well-informed, well-researched counterpoint. Note that “well-researched” doesn’t include citing an article in “Apple Fanboy Webzine” or the “Hymnal of the Church of Steve Jobs”.

I get the impression he was not far off. Not at all. Critics were very far off the mark.

125 comments. Some examples:

I prefer superior UI, which open source projects sadly seem to be completely incapable of producing.

So as long as you’re predicting, when will the number of Android devices exceed the number of apple devices?

Microsoft might have actually struck the perfect balance between control and ubiquity once again with Windows Phone 7 Series.

Oh, and in a world of uncertainty, malware, and good old information overload, a vendor-controlled restricted App Store has yet to be trumped in effectiveness as a quality and consistency filter by any open solution.

But Linux on the desktop is losing ground to the Mac, even amongst hackers. Why? UI and UX.

As a holder of a large position in Apple stock for the past year, I can only say giggity giggity giggity!!

I think Mr. Raymond makes a whole set of fundamental assumption errors:

Individual apps and a free ecosystem are nothing; systems integration is everything.

It’s still early times in mobile; given all the mistakes being made, it’s ripe for someone else to come in take away share, perhaps Windows Mobile 7.

If Nokia adopted Android, it would instantly become the biggest Android player in the world. It would dominate Android and could have a big statement in how Android is developed.

Say what?

And why would Google change anything at all for Nokia?

If Nokia adopted Android (which they quite possibly should), it would not give them power over it; it’d reduce them to purely a hardware maker, rather than a platform maker. (Probably for the best, seeing as how bad they’ve been at the latter, and how much they really are the former anyway.)

The only way Nokia could “dominate” Android or have a “big [say] in how Android is developed” is if they managed to fork it and make their own serious changes, and do something so compelling with it that Google would feel compelled to fold their changes in rather than telling them to have fun and go screw themselves.

Nokia is not a company I believe is capable of doing that. Nokia’s never been able to do anything vaguely like that.

Would you share your thoughts about car “Infotainment” systems? I’m tempted to purchase a Ford, but I’m not going to get Microsoft in any vehicle I own. I keep expecting to see much better things from some manufacturer – am I going to be waiting long?

@Red: I’m a bit of an insider in the automotive industry, having spent nearly 10 years working the automotive IT circuit in Detroit. I’ve heard that GM will be offering new infotainment systems late this year based on their OnStar technologies (Hughes Satellite). Early rumors that you won’t find in print elsewhere include the possibility of working with Google on this technology. I can’t say more, nor can I say where I heard this, as I don’t want to get the individual in question in trouble. :)

(“Late this year” in the automotive business means that the technology will likely be officially unveiled at the 2012 North American International Auto Show in January, but will be available at certain dealers starting in December.)

Based on my observations, I think Verizon will have a very good quarter with the new iPhone. That 4Q sales drop that AT&T experienced? That’s people who heard the rumors of Verizon iPhone holding out to upgrade hardware and network at the same time. But once those people have their iPhone 4V, sales will slow significantly, because the iPhone really is close to saturation. Expect Verizon to do ok as some AT&T customers switch when upgrading their phone, but total iPhone sales will not grow that fast anymore. (Until the next inflationary bubble pushes lots of people’s nominal income to levels where they think they can afford a smartphone instead of a dumbphone.)

I’ve read somewhere that iPhone users are particularly heavy data users, even compared to other smartphone users. If that’s the case, there’s another benefit to AT&T for losing their monopoly, and another potential danger for Verizon. It also probably means there’s a definable market segment who will stick with iPhone pretty much forever, but that the remainder of the market will be almost impossible for Apple to hold on to.

So far, there have been comparisons to events in PC history, looking for analogies to the smartphone wars. I don’t think that’s right; instead we should look back at the Beta/VHS battle.

Sony had what was a superior tape format, but the other manufacturers ganged up on it and overwhelmed the market with cheaper machines. Sony lost.

Now that the iPhone has been out for a long time (in hipster years), much of its appeal will wear off. (“The iPhone? It was cool two years ago…”) If Nokia goes over to Android, there will be too much competition on price for Apple to stay in the business.

OTOH, with Nokia hesitating, there is an opportunity for Microsoft to pour money into Nokia, produce a lot of cheap Windows phones, and push their way to some success from the bottom up, rather than the top down.

>Now that the iPhone has been out for a long time (in hipster years), much of its appeal will wear off. (“The iPhone? It was cool two years
>ago…”) If Nokia goes over to Android, there will be too much competition on price for Apple to stay in the business.

That all depends on whether the iPhone is more like the RAZR or more like the iPod, unless you see a whole lot of people these days saying “The iPod? It was cool two years ago…”

There will always be people who buy Fords, and 10 year-old Hondas who think they’ve saved money and bought an equivalent mode of transport. These folks think price is value, and they’re right, for themselves.

Some people love to keep an old car running, or even restore or modify it. They’re car hackers. They’re like Android or iPhone developers, even jailbreakers. Others will happily follow along, reading the Car Craft magazine articles or Cyanogen HOWTOs. ‘fast followers’ or fanboys of a different color than they typical “Ford!”/”Chevy”/”Apple”/… stripe.

But still fanboys, rather than true craftsmen/hackers.

OTOH, there will always be people who buy BMWs, Porsches, and Mercs, or who want to.
These peoe will continue buying iPhones, or top-line Android phones (e.g. The Droid series), both for the better experience as well as for the pinache.

BMW doesn’t care to have 50% of the market. Neither does Apple.
BMW isn’t threatened by not having 50% of the market.

Neither is Apple.

Android is not inherently superior because the source is available with a permissive license.
Neither has Linux conquored the desktop via a permissive license on its source code.

I own a BMW Z4, a 2011 Toyota pickup, and a 1965 Mustang that is faster than anything you own.
As well as 3 Android phones and 3 iPhones (one jailbroken)

> if you ask what will be the next Android killer — crickets, as in who cares?

I wonder if anyone’s keeping a list of the devices that have been touted as (apple product) killers. I remember the “Zune”, which was hyped like crazy as an iPod killer, but didn’t even make a dent in the also-rans like all those “plays for sure” devices.

God you are such a snotty shit. I see we have Thurston Howell III among us. Color me not impressed; money is not everything in life, as nice as it is to have. It’s because of people like you that the left gets the traction it does with it’s class war drivel. How does it feel to know that you are partially responsible for the fall of Western Civilization?

@J. Jay: Your ignorance astounds me. First off, I don’t care much for status symbols or high fashion. I’ve already stated that I’m a Unix systems engineer, so poor I am definitely not, nor am I particularly rich. But I do make a decent living. And I rather like my LeBaron, no matter what you think of it. It’s mechanically sound and fun to drive, especially with the top down.

Market share? Apple hasn’t cared about market share since Jobs came back. They’ve gotten big, sure, but they’re still a boutique business, and boutique businesses can last forever, as long as they’re profitable. If Apple’s margins start to fall, I’ll worry about them. Until then, I’ll just enjoy using their beautiful products.

Not that old canard. Next you’re going to be telling us that Dvorak was better than QWERTY. Yes, by the objective measurement of video quality, Betamax was the winner. But guess what? It didn’t record enough stuff on a single tape when it first came out.

If there’s one thing that Apple has proven in the last decade, it’s that price-cutting isn’t the only way to compete in a crowded market.

Apple didn’t need to “prove” this; it’s always been known. Apple can have their 5 or 6% of the cellphone market and I don’t care. Android was a needed antidote to keep them from getting too much of it. The argument here (well, the bulk of it) is not about Apple’s profitability, but about Apple’s share of the smartphone market. Two completely different issues.

1. It’s hard to sell a premium device on a non-premium network. AT&T has likely hit the saturation point in the market of people willing to put up with their poor network while paying iPhone money. Don’t expect the core of AT&T’s Android business to be high-end either.

2. Apple was pretty much stuck with AT&T as an exclusive partner. Verizon wasn’t willing to give Apple control for the original product, nobody else was viable as a launch partner in the US. Things have changed, AT&T needs either a much cheaper offering or a better network, guess which is easier to do? Apple needs to get unshackled from AT&T. Both sides had good reasons to get out of the exclusivity deal.

3. AT&T needs Android to compete, both because everybody else has it and because the supplies of 3GS’s is going to dry up soon and there goes their low-budget Smartphone. $50 smartphones on AT&T’s network are a much easier sell than $200 ones.

4. AT&T is desperately trying to avoid spending money on their network since margins are low now. In order to maintain new activations they need better deals.

Frankly, I see what’s going on as Win/Win for both iOS and Android. iOS wins by going multi-carrier via Verizon, Android wins by nailing down the last non-Android carrier in the US, functionally committing the US market to a iOS/Android future since WP7 or RIM aren’t going to be able to net a flagship exclusive deal now that the two biggest carriers are offering both iOS and Android. The losers here are WP7 and RIM.

Consumers have lost a little since the start of this, IMO. When the iPhone came out, the plans were indeed pricey, but for what you got compared to similar phones with similar plans at the time, it was a fantastic deal. In particular the unlimited data (real* unlimited, not 5GB and your done unlimited) and the concession that Apple and the consumer would have control over the software upgrade process not the carrier, were huge changes in the way the cell industry was working at the time. Unfortunately, instead of using the desperation of other carriers to compete with the iPhone, and partnering up with a hardware manufacturer to extract more blood from the carriers, Google simply released android into the wild for anyone and everyone, and as a result, the plans and the limitations seem to be drifting back towards the way they were before the iPhone. I doubt they’ll stay there, but look at the joy over the fact that Samsung has deigned to allow an upgrade to the now previous generation Android OS, or the T-Mobile cruft-less** G2. esr and others rightly hail these as examples of market pressures finally forcing the carriers to bow to consumer demand, but it didn’t have to be this way. Had Google tightly held android to start, they could have extracted these things from the carriers as a condition of being able to compete with the iPhone, and Android users wouldn’t have had to fight for 3 years to get to where the iPhone was on day one. Google could even still had released Android as OSS later, after the barn door was open. After all, once it was in the consumers heads that smart phones like an iPhone or its competitors were consumer controlled, and carrier cruft-less it would have been all but impossible for the carriers to reverse that, even if anyone could then use android. Now this isn’t to say this is particularly a failing of Android, but of the way Google played its Android hand when it mattered most.

* For certain legally accepted values of unlimited which may or may not coincide with the dictionary values.

** Cruft-less only in some aspects, there are still carrier apps installed.

>Had Google tightly held android to start, they could have extracted these things from the carriers as a condition of being able to compete with the iPhone, and Android users wouldn’t have had to fight for 3 years to get to where the iPhone was on day one.

Had Google tries to exert that much control at the outset, the carriers would have balked. It was necessary that Android be a honey trap.

Had Google tries to exert that much control at the outset, the carriers would have balked. It was necessary that Android be a honey trap.

Heh. Beat me to it. But I think “balked” is the understatement of this fresh year. Had Google tries to exert that much control at the outset, I probably wouldn’t know or care what an Android was, because nobody ever would have seen a phone running it.

Had Google tightly held android to start, they could have extracted these things from the carriers as a condition of being able to compete with the iPhone, and Android users wouldn’t have had to fight for 3 years to get to where the iPhone was on day one. Google could even still had released Android as OSS later, after the barn door was open.

Logic fail. Had Google exerted the control Apple did, they would have never made it in the barn door in the first place. Apple had to give away the keys to the kingdom to get AT&T on-board, after much struggle no less. What would make you think that the carriers would have treated Google any differently?

Wouldn’t the simpler conclusion be that AT&T’s customer base has reached iPhone saturation, rather than drawing a broader conclusion about the nation in general?

The truth lies somewhere in between. After all, the AT&T iPhone exclusive drew a lot of subscribers who viewed the iPhone as a “must-have.”

So there are a few related questions:

1) How many Verizon subscribers who feel strongly about staying on Verizon (otherwise they would have switched already) will view the iPhone as a must-have, secondary only to being on Verizon?

1a) How many of those are dumb or rich enough to switch now, rather than waiting for 4G?

2) How many Verizon customers view the iPhone as somewhat better than Android for their next upgrade?

3) How many Sprint and TMobile customers lust after iPhone, but couldn’t countenance AT&T yet think Verizon is probably OK?

4) How many AT&T customers hate AT&T, have to have their iPhone, and were smart enough to not get locked into a 2 year contract in the last 6 months, or rich enough to not care?

The answer to 1a will affect how quickly the customer base of (1) switches. The answer to 2 will partly be determined by cost differences between Android and iPhones (customers that required iPhones would already be on AT&T, so current Verizon customers are necessarily somewhat ambivalent). The answer to 3 is probably not all that many, for the simple reason that there aren’t that many total subscribers there. The answer to 4 is probably larger than the answer to 3, and probably reasonably guessable, starting with the calculation of how many iPhone users didn’t upgrade to iPhone 4 when it first came out. I calculated on earlier posts, for example, how many iPhone 4s shipped in Q3 were probably iPhone upgrades.

Currently, only 26% of Verizon’s postpaid customers use smartphones, and that’s after 9% of Verizon’s customers got a new phone last quarter. I have to believe they currently have a lot of price-sensitive customers, so it may be that the iPhone is primarily a tool to pull customers from other networks. If so, the uptake will have an initial spike, and then go gradually as customers roll off contracts on other networks. Pundits are apparently predicting 6 million iPhones on Verizon in Q1, and 13 million for the year. Could be, but it seems a bit high to me, given that 13 million is well over half of the total number of postpaid smartphone users on their network today. If they really do add that many, and add a lot of Android users as well, we may find out whether or not their network really is up to snuff.

1. “Rich enough.” From what I understand, Verizon, like AT&T, is selling the majority of its smartphones on subsidized data plans right now – which means any middle or top-tier smartphone is selling for $99 and $199 price points on contracts. The iPhone is just another $199 contract phone among many, so I don’t understand the idea of “rich enough” to buy one — because there seems to be little price difference between any smartphone offering, sans the formerly free-on-contract and fondly lamented Palm Pre Plus. “Budget smartphone” is not a term that exists yet on Verizon and AT&T.

2. Dumb enough — and I assume this relates to the banality of investing in a 3G phone and contract when Verizon is on the cusp of rolling out their 4G network — the assumption being that it would be stupidity to turn down the option of having 4G capability.

My counter-response here is that Verizon’s 4G, much like AT&T’s 3G network, cannot guarantee good coverage. AT&T had to begin a completely new 3G build-out from what I understand [again, correct me if assumptions wrong] — a build-out that, nearly five years later, still isn’t what the market calls the greatest. Verizon was able to upgrade most of their existing CDMA towers to EVDO’s Revision A (Wikipedia at least seems to suggest the CDMA towers had a pretty reasonable upgrade path, until now).

So whereas Verizon was able to more cost-effectively update their infrastructure to nearly ubiquitous 3G, AT&T had to roll out new technologies that still aren’t done. My argument is that now Verizon finds itself in the same position — new towers must be rolled out, and initial coverage is sparse [although growing at a great rate - 40 city markets or somesuch in December.]

In addition the power disadvantage to 4G has been described — indeed, 3G itself still has a power disadvantage (my 9-hour Palm Pre Plus can last nearly two days if I simply disable EVDO).

So in my reasoned but absolute opinion, the first-year 4G rollout is far from a desirable mass-market feature. Verizon itself hasn’t yet advertised any 4G phones, and while we know they’re coming from CES, my parents certainly don’t. It will come, but similar to the first iPhone’s insistence upon EDGE-only, I expect it will be a while before Apple updates it for new cell-technology — because the benefits are dependent upon infrastructure availability, and not anything inherent to the phone as a unit itself.

This isn’t related to the ultimate utility of 4G – it sounds great to me. But I wouldn’t plan on using it for anything myself other than the sheer novelty and occasional cell download, when it’s available. I imagine I’d just disable 4G for 99% of the time on any of these slick new Android phones coming out, like the Thunderbolt.

I definitely wouldn’t call it “dumb” to sit out the first year of 4G phones, anymore than I’d call it “dumb” to sit out the first year of any product — including an Apple product as well. Some might even say it’s wise, or prescient.

By the way, what tag are you guys using for the block-quotes in replies?

Patrick Maupin Says: If they really do add that many, and add a lot of Android users as well, we may find out whether or not their network really is up to snuff.

That’s a very important point. We already had another thread about cellphone carrier infrastructure and how costly it is. If a goodly fraction of Verizon’s ordinary phone users suddenly decide that they want an iPhone and actually start using their new data capabilities we may yet see Verizon executives crying over the new expenses, while the smartphone users are crying over how awful Verizon’s network is.

“Can you hear me now? Welcome to the new AT&T!”

I suppose some engineer at Verizon must have projected the needed network capacity and verified that they have it. We’ll find out soon enough.

“The iPhone is just another $199 contract phone among many, so I don’t understand the idea of ‘rich enough’ to buy one.

“2. Dumb enough — and I assume this relates to the banality of investing in a 3G phone and contract when Verizon is on the cusp of rolling out their 4G network.”

I think Patrick’s point was that if you are rich enough, you can afford to buy an iPhone now, use it until 4G comes out, and then pay again to go to 4G right away. He’s talking about a price-no-object customer who want the top-of-the-line at a given moment and quickly moves to higher-end alternatives when they become available.

Such customers exist, but I would guess that there are very few of them. Certainly there aren’t enough on which to base a business model.

“Rich enough or dumb enough” was on point 1a, which is a subcategory of point 1, which talks about consumers who “must have” iPhones. Bear in mind that a real Apple fanatic who has shown enough self-restraint to stay on Verizon just might be able to show enough self-restraint to wait for 4G. Also, most of these customers are going to be under current contracts, which probably aren’t expiring right away.

The iPhone is just another $199 contract phone among many…

Depends on the model. iPhone supposedly will be $199/$299. There are a lot of different Android phones on Verizon’s website, with different contract prices. Right now you can get the Android LG Vortex for $139.99 on a 2 year contract, minus $100.00 online discount for a total price of $39.99. If I read the website right, a Motorola Citrus might even be free.

Carriers have always charged differing amounts for different phones. When smartphones first came out, this changed, as the perceived ceiling that customers would pay was deemed to be $200. Now, variable pricing is back, in both directions — customers will pay more for more phone, and Android has driven smartphone prices down to where the carriers can offer some of them for less than the magic $200.

Even if Verizon would have offered phone X at $200 if they didn’t have the iPhone, now that they have the iPhone, they will offer phone X at some lesser amount, because (assuming that iPhone is preferred by the average customer) it will increase Verizon’s margins if they share the reduction in cost associated with some other phone with the customer.

I definitely wouldn’t call it “dumb” to sit out the first year of 4G phones, anymore than I’d call it “dumb” to sit out the first year of any product — including an Apple product as well. Some might even say it’s wise, or prescient.

Sure, but this definition of dumb says customers should wait awhile anyway — CDMA is just as alien for Apple as 4G. So your “smart” customers still figure into the number that won’t be buying Verizon iPhones next month. The smart answer is probably to wait a few months after iPhone 4G rollout.

As far as network rollout, I think that any phone that does 4G probably needs to fallback. I think the next phone from Apple will probably do a lot more in software, perhaps even 3G/4G/CDMA, and might therefore be a better technological bet than the current one on every front except battery life.

4G matters. More than you might think. CDMA sucks in that you can’t do simultaneous voice and data; that means doing things like WiFi tethering won’t work well on anything but a 4G network (indeed, Sprint won’t even let you do tethering on the Evo 4G on anything but their 4G WiMax network). Furthermore, carriers are rolling out very, very cheap all you-can-eat data plans on 4G. I think you can see where this going: you’ll be able to take your broadband connection with you anywhere you go and you won’t need to go searching for WiFi hotspots.

>Logic fail. Had Google exerted the control Apple did, they would have never made it in the barn door in the first place.
>Apple had to give away the keys to the kingdom to get AT&T on-board, after much struggle no less. What would make you think
>that the carriers would have treated Google any differently?

Apple had to “give away the keys to the kingdom” because no other carrier or phone had ever been done like the iPhone before. The fact that Apple wanted changes to the network as well didn’t help either. Apple had to buy their way in because they were neither an established player nor were they going to play by established rules.

So why would the carriers treat Google differently? Because after it was clear the iPhone was a hit, the carriers were absolutely desperate for anything that could compete with the iPhone. Look how much hype was driven (by Verizon no less) over the blackberry bold. That barely could have counted as a competitor, but for a time, it was all Verizon had, and they sold it for all it was worth. All Google had to do at the time was dangle a working Android prototype in Verizon’s face with offers of having something to compete with the iPhone, and of course reminding them that their commitment to the “old ways” caused them to pass on the iPhone in the first place, and if anyone had a strong enough brand identity to compete with Apple and the iPhone, it would have been (and indeed is) Google and Android.

> Such customers exist, but I would guess that there are very few of them.

Well, a more accurate statement would be, “Such customers exist, but I would guess that there are *relatively* few of them.”

> Certainly there aren’t enough on which to base a business model.

Wrong. Business cell customers can upgrade at-will if the revenue-bearing use makes them that much more effective.

Anyone who is a Mac user is a highly analogous customer, and Apple’s Mac sales are growing.

Eric, the “Noodle Incident” is something from the past that is sometimes referred to but never explained, with the implication that it’s just too ludicrous for words, and the reality that any explanation would fall short of audience expectations. Questions about it are often met with “You Don’t Want To Know…” Persisting is a good way to press a character’s Berserk Button.

The Hitchhiker’s Guide to the Galaxy has a few. Examples:

The Great Collapsing Hrung Disaster of Gal./Sid./Year 03758, which wiped out almost everybody on Ford Prefect’s ancestral planet Betelgeuse Seven. Lampshaded by mentioning that nobody knows what a Hrung is or why it should collapse on Betelgeuse Seven — least of all Ford, whose childhood nickname “Ix” meant “boy who is unable to satisfactorily explain what a Hrung is, or why it should collapse on Betelgeuse Seven.”

In Life, The Universe and Everything, Wowbagger the Infinitely Prolonged is said to have gained his immortality after “an unfortunate accident with an irrational particle accelerator, a liquid lunch and a pair of rubber bands.” The details are apparently unimportant as no-one has managed to duplicate the events, with everyone who has tried ending up looking very silly. Or dead. Or both.

> You’ll be able to take your broadband connection with you anywhere you go and you won’t need to go searching for WiFi hotspots.

Unlikely. WiMax and 4G both run a modulation very similar to WiFi’s OFDM modes. Imagine a couple APs attempting to serve several square miles. It will be great while (data) usage is low, but it can’t scale to the point you’re hoping for here when millions are using it.

> CDMA sucks in that you can’t do simultaneous voice and data; that means doing things like WiFi tethering won’t work well on anything but a 4G network

Doesn’t follow that a lack of simultaneous voice and data mean that tethering doesn’t work well. Certainly you can’t be on a phone call while tethered, but I think we all understand that VoIP is going to come to mobile telephony soon (< 10 years), and at that point, the differentiation won't matter.

> The smart answer is probably to wait a few months after iPhone 4G rollout.

You guys act like it’s impossible to have more than one phone. I certainly plan to buy a Verizon iPhone a few weeks after they become available, *and* retain my AT&T iPhone. Come June/July, if there is a forklift upgrade to 4G for either, I”ll upgrade.
It’s not that big a deal, couple hundred up front and slamming the additional handsets on a family plan.

Give up a landline, cable TV, your gym membership (go running and buy a weight set for home), and beer and see how much money frees up every month!

As realization struck me as I was listening to Darryl “DMC” McDaniels of Run-DMC tell the story of when he sat in his hotel room while on tour and thought about killing himself. McDaniels thought back over his life and his runaway success and realized that he still wasn’t happy.

Many of us go through life dreaming about being rich and famous. Maybe we think that next company will get acquired. Maybe we’re secretly practicing for the next round of American Idol tryouts. But as fruitless as those dreams might be, they still give us hope.

We believe that special something might be around the corner, might be able to change everything.

But the rich and famous don’t have that luxury. They already have the worldly success that so many of us think will make us happy. And they’ve discovered that it doesn’t.

At that point, there are only two conclusions they can draw.

One, having achieved all the worldly success they ever wanted to achieve without achieving happiness and satisfaction, they conclude that nothing will ever make them happy. In response, they seek oblivion in drugs or death.

Two, having achieved all the worldly success they ever wanted to achieve without achieving happiness and satisfaction, they conclude that worldly success doesn’t bring happiness and satisfaction, and that they need to seek true happiness in other ways.

We often think that the rich and famous are lucky, and we envy them their worldly success. But that same success leaves them no excuse for being unhappy. There are many cautionary tales of celebrities, especially those who achieved their fame young, who never managed to get past their moment of truth.

But whether you’re rich and famous or poor and obscure, remember one fact–extrinsic motivators like fame and fortune don’t make you happy. In fact, they may make you unhappy even if you achieve them. More scientifically, an abundance of external trappings don’t keep jacking up your serotonin/dopamine/etc. They might for a while, but then the Hedonic Treadmill kicks in, and you level back out. http://en.wikipedia.org/wiki/Hedonic_treadmill

Focus instead on the things that really matter–intrinsic motivators like relationships, creativity, growth, and giving back.

With apologies to Edwin Arlington Robinson:

They say that J. Jay owns one half of this whole town,
With political connections to spread his wealth around.
Born into society, a banker’s only child,
He had everything a man could want: power, grace, and style.

But I work in his factory
And I curse the life I’m living
And I curse my poverty
And I wish that I could be,
Oh, I wish that I could be,
Oh, I wish that I could be
J. Jay.

The papers print his picture almost everywhere he goes:
J. Jay at the opera, J. Jay at a show.
And the rumor of his parties and the orgies on his yacht!
Oh, he surely must be happy with everything he’s got.

But I work in his factory
And I curse the life I’m living
And I curse my poverty
And I wish that I could be,
Oh, I wish that I could be,
Oh, I wish that I could be
J. Jay.

He freely gave to charity, he had the common touch,
And they were grateful for his patronage and thanked him very much,
So my mind was filled with wonder when the evening headlines read:
“J. Jay went home last night and put a bullet through his head.”

But I work in his factory
And I curse the life I’m living
And I curse my poverty
And I wish that I could be,
Oh, I wish that I could be,
Oh, I wish that I could be
J. Jay.

>We often think that the rich and famous are lucky, and we envy them their worldly success.

“Famous” is a more dangerous and soul-sucking place to be than most people understand. It is certainly true that being famous is no royal road to happiness, nor does it do much to banish unhappiness. I speak from direct and sometimes very painful experience.

“Rich” is a little different – less symmetrical. It’s not a royal road to happiness either. But there are some kinds of unhappy it banishes forever. On a very basic level, rich people don’t have to settle for crappy food and shoddily made clothes and the like. Having lots of money doesn’t solve the large problems of life, but it lubricates away many of the small ones.

Doesn’t follow that a lack of simultaneous voice and data mean that tethering doesn’t work well. Certainly you can’t be on a phone call while tethered, but I think we all understand that VoIP is going to come to mobile telephony soon (< 10 years), and at that point, the differentiation won't matter.

Maybe. That depends on how much control Google manages to wrench from the carriers. I remember people saying 10 years ago that in 10 years we’d all be doing VOIP on mobile phones. Still hasn’t happened yet.

@tmoney:

So why would the carriers treat Google differently? Because after it was clear the iPhone was a hit, the carriers were absolutely desperate for anything that could compete with the iPhone.

Not nearly so desperate as you think. When the iPhone first came out, even after it was clear that it was a hit, it represented such a tiny fraction of the market that it didn’t matter. The market was about feature phones, and remained about feature phones until about two years ago. That’s when smartphones started taking over. Before that, phones like the LG enV were king, and the iPhone was barely a blip.

An older gentleman who was a co-worker of mine years ago was fond of saying that “happiness is not determined by the size of your color TV.”

Bear in mind that a real Apple fanatic who has shown enough self-restraint to stay on Verizon just might be able to show enough self-restraint to wait for 4G

This is an interesting point. The other possibility is that the value they see is in the phone brand (Apple), and the network they have now. It’s not unfathomable that the Verizon iPhone may sell well simply for what it claims to be – a good phone on what you already think is the best network [coverage-wise.]

@Morgan
The hotspot’s functionality really isn’t derailed by Verizon’s lack of simultaneous voice+data. Assuming you’re not literally getting a phone call every 20 minutes, of course. In any other situation it’s still very handy.

@Patrick

Sure, but this definition of dumb says customers should wait awhile anyway — CDMA is just as alien for Apple as 4G. So your “smart” customers still figure into the number that won’t be buying Verizon iPhones next month.

Not necessarily. Intuitively, if you reason that Apple is known for well-made products, the choice of “Apple using a well-established but unfamiliar phone technology” vs. 4G’s selling-point of “Non-Apple companies using a newly rolled-out universally-unfamiliar next-generation cell techology” is not a hard decision, from the “pick the safe choice” perspective.

Intuitively, if you reason that Apple is known for well-made products, the choice of “Apple using a well-established but unfamiliar phone technology” vs. 4G’s selling-point of “Non-Apple companies using a newly rolled-out universally-unfamiliar next-generation cell techology” is not a hard decision, from the “pick the safe choice” perspective.

I guess I’m assuming that iPhone 5 will be rolled out next summer and will do CDMA/3G/4G. If you’re willing to wait, you can have 4G on Apple in 6 months. If you’re rich enough, or as WBTE points out, simply have your priorities right :-), you can go ahead and get the CDMA iPhone 4, then get the 5 as well when it comes out.

>or perhaps Eric is Ken Kesey, and the blog is a school bus nicknamed “Furthur”.

I’ve always felt a lot of sympathy for Ken Kesey. He was naive and in his later years rather drug-addled, but his Merry Prankster groove was one of the best inputs to the Sixties counterculture. If the hippies had followed Kesey more and the Marxists less the world would be a far better place today.

And as is the case for smartphones, developing countries represent a huge opportunity for any manufacturer that can bring out tablets at very low prices and meet country-specific needs. The Indian government is already thinking along these lines with an Android system that will cost a rumoured $35 per unit (although, not surprisingly, there are some doubts as to the feasibility of this project.)

Apple simply cannot compete in these markets: its business model is based on charging a premium price for a premium product. I have no doubt that it will thrive as it continues with this approach, but it inevitably means that it will become a niche player, albeit in a huge market.

@Patrick> I guess I’m assuming that iPhone 5 will be rolled out next summer and will do CDMA/3G/4G.

Just so everyone is aware, Verizon will be using CDMA for voice and LTE for data until their Voice over LTE (VoLTE) is rolled out in 2012. Similar for AT&T with their voice calls on UMTS(wcdma)/GSM and their data on LTE until at least 2013. IMS simply isn’t ready.

Come talk to me when “Voice” only appears on a bill under a breakdown of downloads (if at all).
Just because they charge me 10c/min to go over LTE instead of charging me 10c/min to go over GSM or CDMA doesn’t make me hail our new VOIP overlords.

For what it’s worth, assumptions about the AT&T/Apple exclusivity agreement are risky. I’d recommend reading the TechCrunch article on the subject if you want to see a compilation of the known evidence. Any theory which ignores the possibility that AT&T gave up something in order to get the iPad seems incomplete to me, but what do I know?

Winter: Remember how the OLPC laptop was going to Fix Education In The Third World? Yeah, me neither. Lots of luck with “Android wins tabletwars because the Indian government swears they can make a $35 tablet”.

If (big if) Android can “win” the tablet wars (which sounds a lot to me like the idea of Ford “winning” the car wars – a fundamental category error) it’ll be by providing better value in the First World. Why? Because that’s where all the money is.

(Also, on mesh networking? It was never going to be “a hit”. Because it’s useless 99.99% of the time. It really is a “geeky pipe dream”, and by no means a new one – I remember being promised that there’d be ubiquitous WiFi meshes by Real Soon Now. I think that meme started around 2003? Certainly it was established as “coming soon” and strangely absent in reality by 2005.

Nobody outside of communications geeks ever gave a damn about it for anything other than emergency communication [where it is, admittedly, actually useful - that .01%!].)

The other case where mesh networks are really useful is for the military (much the same as the emergency case), and the US military has spend a decent chunk of change working on this. I don’t know if they’ve accomplished anything much, though…

The other case where mesh networks are really useful is for the military (much the same as the emergency case), and the US military has spend a decent chunk of change working on this.

The US military packs sand down technical ratholes all the damn time. Remember the Strategic Defense Initiative?

The reason why mesh networks don’t work is simply that they don’t scale the way a high-TX-power access point with good ol’ fashioned backhaul scales. The money spent on making the “mesh networking” boondoggle happen could be better spent on new ways of rapidly deploying mobile comms towers that service an entire battlefield with wireless encrypted voice/data/video comms.

Here’s why Android will win the tablet wars:

There are oodles of Chinese and Taiwanese companies just waiting to burst into this market. Thanks to Apple, tablets are the new hot thing and everybody and their dog will want a piece of that. I can’t even count the list of big players, let alone the little Taiwanese shops that are basically just one guy (who subcontracts actual manufacture to mainland China, natch). Where else are they going to turn? They can’t get iOS. Windows Mobile? What with the licensing costs and the lack of an installed application base, it’s just not cost-effective. That leaves Android, which has a large installed user base already, and “something like” Apple’s App Store full of cheesy games and fart apps to run on the new toy.

It won’t be the best solution. But thanks to the crapflood of cheap rinky-dink Chinese tablets, it will be the most readily available solution. Just like the Mac and Amiga trounced the peecee back in the day, but the peecee eventually “won” because everybody and their cat could go into business building and selling peecees. Just you wait. You’ll be able to buy a 5″ Android tablet for $25 at CVS and give your kids a nice stocking stuffer.

This is a very US centric debate. I seriously doubt the US market is even near saturation for the iphone.

1. Apple has repeatedly said they are unable to make enough iphones to meet demand. This may be more apparent in Asia than the US but there are clearly stores with no iPhones in the US. I know from personal experience.

2. Something like 70% of smart phones in japan are iPhones.

3. Guess how many cellphones (not smartphones) are iPhones in Denmark? 16% (yes that is a 16).

Back to US centric debate. I still do not get why anyone thinks ATT voluntarily requested the end of iPhone exclusivity. Nowhere has ATT or apple ever announced it was for 5 years. I bet 3 years renewable for 2 more if both agreed. but that’s as much a guess as assuming it was for 5 years.

And the statement above that suggested Apple has caved to both ATT and Verizon is dubious. Remember Verizon refused apple initially because apple wanted input on or control of app downloads, music downloads, video downloads, branding, voicemail, data charges, marketing, etc, etc. How’s much did Verizon get of these in 2011? Zilch. Apple had a strong position in 2007, and clearly had a strong position in 2011. If ATT had booted apple involuntarily then I’m sure Verizon would have had their fingers and logo all over the iPhone.

Winter said: “Why Android will win the tablet wars … The Indian government is already thinking along these lines with an Android system that will cost a rumoured $35 per unit (although, not surprisingly, there are some doubts as to the feasibility of this project.) Apple simply cannot compete in these markets”

What? A hypothetical computer system that costs an order-of-magnitude less than any tablet today, and which many doubt will ever exist, is going to beat Apple because … Apple can’t compete with nonexistent products? What does that even mean?

We had the “$100 laptop” already. We’ve had netbooks already. How cheap does a product have to get before a significant number of people don’t care how badly designed it is? Apparently pretty cheap, since Apple seems to be doing just fine in the presence of cheapo netbooks already: the past few years, they’ve been the only ones with consistent positive laptop sales growth.

“its business model is based on charging a premium price for a premium product.”

That was true in 1994, but is it true today? If the iPad is a “premium products”, where’s the discount Android version? The Samsung tablet is both smaller and more expensive. Where’s the competitor for the iPod Touch, at any price? Why are the only price-competitive competitors to iOS devices other smartphones, where the true price is hidden behind contracts?

The latest iPhone is already down to $200, and the previous version at $100. And they release once a year like clockwork, so in 6 months the iPhone 4 will be $100. The contract for any of these smartphones starts at over $2000 for 2 years, so it’s really sticker-price that consumers seem to care about. But given how much it is, I’m sure they could bring it down to “free with 3-year contract” if they wanted to. How’s Android going to compete with something that looks, to the average consumer, virtually free?

Apple is the world’s biggest buyer of Flash, owns their own CPU design team, etc. They don’t even use stock headphone jacks: they save space and materials by making it part of the case itself. If you’re comparing this to the PC market 20 years ago, and predict that the winner will be the one with ubiquity and volume on their side, then Apple+iOS is now playing the part that Dell used to. They’re not putting SCSI in here. They’re doing everything possible to save chips on the board — exactly what Woz did with the Apple II floppy drive, which, BTW, was also the time when Apple had massive market share. Are Android advocates hoping that Apple’s executive board will fire their founder a second time?

“I have no doubt that it will thrive as it continues with this approach, but it inevitably means that it will become a niche player, albeit in a huge market.”

Even if they charged more, why is that conclusion inevitable? Doesn’t Intel charge a premium for their processors? Doesn’t NVidia charge a premium for their graphics cards? ISTM that some kinds of companies can charge a premium and stay mainstream, and the pattern seems to be those that have the breadth of expertise to go as low- or high-level as needed. If you’re designing your own CPUs/GPUs, you can build in efficiencies that your competitors won’t be able to touch.

They added 872K net direct postpaid subscribers last quarter. A net gain of 128K customers for iPhone would not be impressive.

But if you mean a bump of incoming customers by an extra million, that’s possible, but if they have to subsidize 6 million iPhones to do it, it could hurt. Differential pricing on iPhones for new vs. old subscribers could happen as early as next quarter.

While it’s true that AT&T added just 400K net new phone subscribers, they also added 442K tablet subscribers, for a total of 842,000 new subscribers. During the same quarter, Verizon added 872,000 new subscribers, a difference of only about 3%.

Furthermore, Verizon activations were down from 1.1 million in the same quarter of 2009. Why the big drop? According to Verizon COO Officer Lowell McAdam, expectations that Verizon would soon carry the iPhone had a damping effect on sales.

It’s not about a superior user experience – WebOS might have the edge there, and there are some interesting Android UI.

But the one thing Apple are doing better than any of their competitors is providing a superior way of getting money into developers hands, and that equals more investment in producing new software. Cheap hardware without software is still going to be useful – we have the whole of the web – but Google, the manufacturers and the telcos are still mucking up the Android software market angle, despite the larger volume of users.

And for what it’s worth, the argument that the PC succeeded because it was ‘open’ is bogus. The Unix/POSIX standard was actually open, hence implemented on a lot of different CPU architectures – you could implement your own, provided it matched the spec and you paid the trademark licences. GEMM – the OS used by the Atari ST – was also openly available for license by manufacturers. Equally, my recollection is that PCs were relatively expensive for a long time, with cheap PCs only arriving some time in the mid-90s – after the PC was already the dominant desktop platform. So I don’t buy the story that cheap open PCs killed off rivals – the Atari and Amiga were cheaper and better. The aspect I think a lot of people forget is that for most of the first 10 years people called them ‘IBM PCs’ and ‘IBM PC compatibles’.

I find this take bizarre. How could it possibly be in AT&T’s best interest not to have an exclusive deal on iPhone? Just because they had an exclusive doesn’t mean that they couldn’t promote Android. And no one knows what the deal is with the exclusive ending one year early – any comment on this is pure speculation. We only know that the exclusive deal was initially through 2012 as of 2007.

So if huge lines form on February 10th for the Verizon iPhone, will you change your take?

Why did it play follow the leader with iOS? Why do very few Android phones look like the initial reference phone design? Why is the user experience wildly different between phones? Why doesn’t Android care that OEMs are dragging it’s good name through the mud with lousy hardware and lousier software?

Lots of faulty logic and misinformation, and thus poor analysis and conclusions, in this post.

1. AT&T started talking about Android phones and the end of exclusivity last Feb, even before iPhone 4. Go review CEO Stephenson’s MWC talk. (The end of exclusivity was even being reported widely in the press in Jan 2010.) All of this was before whatever happened in 4Q. So no, Apple was not pushed.
2. Bloomberg reported in June 2010 that Verizon iPhone was coming in Jan 2011 before AT&T had their best quarter ever of iPhone activations. Again, Apple was not pushed.
3. Your biggest mistake: AT&T only had a NET 400K new customers in Q4, but that doesn’t tell you how many new iPhone customers there were (i.e. customers switching from other carriers for iPhone) If you go back through the last 3 years, in every single quarter, AT&T has had more new iPhone customers than NET new customers. The key word is NET. Which means lots of old customers are leaving, and most of the new customers coming to AT&T are picking up iPhones, even in the Q4 of 2010. You’ve fallen for the data trick. I can’t believe you didn’t pick that up during the last 3 years of quarterly reports and conference calls. Was this your first AT&T conference call transcript that you read?
4. 4.1m activations is the 2nd best iPhone quarter ever (after the 5.2m in the 3Q), and likely the 2nd best quarter ever for any smartphone in any country ever (again, the 5.2m in the 3Q being the best). Have you really been analyzing the mobile market more than 2 weeks?
5. AT&T is going to push Android phones because what else does it have to push. Windows Phone 7?
6. Verizon, who has played the cellular game very smartly, is betting on iPhone, after 1.5 years of pushing Droid hard. Doesn’t that tell you something?
7. Your three conclusions will be shown to be wrong in less than 90 days.
P.S. Your screw-up with the update, and update to the update shows how little you really understand what’s going on.

Back to US centric debate. I still do not get why anyone thinks ATT voluntarily requested the end of iPhone exclusivity. Nowhere has ATT or apple ever announced it was for 5 years. I bet 3 years renewable for 2 more if both agreed. but that’s as much a guess as assuming it was for 5 years.

The reason is simple: most mobile developers are developing their apps for both iOS and Android, hence rendering all of Jeff Read’s swaggering statements about the lack of quality apps or decent development community for Android moot. I don’t even bother arguing with him anymore; he is impervious to logic

Canalys estimates there were 12.1m Android phone activations in Q4 in the US. Strategy Analytics estimates 2.1m Android tablets were shipped into the distribution channel (not sold to end users). Verizon also sold iPads; they even ran commercials. And many iPads were wifi only so not activated through any carrier. And shouldn’t we count iPod touch as well?

So your 4:1 Android to iOS ratio is very wrong; not still right. Try again.

What’s with all the implied and overt spite (“biggest bag of substanceless hype and wind Steve Jobs..”, “The iPhone is in deep trouble”, “Anybody betting their dollars or reputation… just took it on the chin, hard.”) and mean-spiritedness (to quote Robert Downey Jnr. in a recent speech). Anyone would think that you are talking about 4 companies (Apple, Google, AT&T and Verizon) one or more of which were teetering on the brink of bankruptcy and ruin.

Last I heard, all the parties mentioned here have their finances in a state of rude health, and none more so than the iconic old fruit, which is chasing the ultimate one-trick pony, Exxon, up the market capitalization mountain for the number one spot. “A disaster”, led by sales of none other than the same iPhone you are referring to? Don’t think so.

Quit twisting the facts to suit your sentiment, which does you little credit, and your analyses and predictions will will be closer to the mark in the fullness of time, enabling you to look back with pride and justification at your utterances.

iPhone doesn’t rule the rest of the world. What makes the US so different from the rest of the world? Just the fact that carriers subsidize phones? If so, the subsidized Android phones at below $50 are still going to keep Android going strong in the US.

So, seriously, what makes the domestic market so different than the worldwide market? The only real thing I know of is the carriers’ willingness to subsidize phones for lock-in purposes. But they have spent a lot of money on that subsidy over the last few quarters, and are ready for some relief, so when Android phones wholesale for cheaper, they are willing to pass those savings on to the customers. And even in the US, there are a lot of cash-strapped customers who might take a phone at $50 but not at $200, especially if the $200 phone can’t be had with a cheaper plan.

Yes, there will be some initial pent-up demand for Apple on Verizon, but no, it won’t catapult Apple in front of Android, not globally, and not for the entire year in the US, and probably not even for the last half of the first quarter.

The world is full of fanbois: Apple, Android, WebOS, WinM 7 (well maybe not many for them). This is just Android fanboi wishful thinking. Take a look around the mobile commentators and the earnings calls put out by the major players. Clearly right now Apple continues to run an extremely profitable iPhone business.

AT&T is not aligned to any handset OS, their business is to sell minutes of data and voice. Its like Eric writing “Shell is abandoning Toyota for Ford”. Walk down the street, go into a cafe, go to a campus, meet different folks from different careers, look into the accessory market, go to a few airports Eric. Count with your eyes.

Don’t approach issues with “the successful option is Open Source, now what was the question”. Open Source is good, close source is good – living in a system where both can flourish is great.

So if you believe this Eric put your money where your mouth is: offer to donate to charity the price of a 32GB iPhone 4 for every million activations Verizon make in their first iPhone QTR.

Your referenced chart of ARPU and Churn is a year old. ARPU at AT&T is at least $3 higher now and churn at both companies hovers close to 1% now. Secondly AT&T activated way more phones in the first three quarters than Verizon Wireless and it wasn’t until the Wall Street Journal Article in August and the flood of confirmations that made the iPhone on Verizon wireless the worst kept secret in the mobile tech world that AT&T’s activations fell off. So AT&T’s activations tailing off could also be a result of pent up demand for the iPhone on Verizon Wireless which is the exact opposite of your conclusion. To make your point relevant you would need to show that same drop off in international carriers as well. Given the recent overall sales numbers (16+ million phones) is unlikely to lead anyone to view that the platform is in “deep trouble”.

Lastly the smartphone market growth is dominated by two players, Android and the iPhone. This isn’t Android vs. iPhone. This is Palm (HP WebOS now), Windows phone, RIM, Nokia etc. fighting for what’s left over after Android and the iPhone take the bulk of the market. And lastly market share is only part of the story. The revenue generated by the iPhone has played a large part in propelling Apple past Microsoft and to second place in company Market Cap. I don’t think Apple or the iPhone is in a much trouble as you portray. RIM, Nokia and whatever the heck Microsoft thinks it has as a mobile platform are the one’s that are in real trouble.

Mark, your 7 points comment hits the nail on the head. Not to rub it in, but the author of this blog, at least from this post, seems to lack some basic understanding of the industry.
One very simple point, the author believes that Android overseas sales account for less than 33% (his second update) – this could not be more wrong. If the author merely read and understood Canlays’ press release he would not have got this wrong:
Canalys data estimates global Android unit sales of 33.3MM in Q4 2010. In the same PR release Canalys estimates Android US shipments of 12.1MM in Q4 2010. Divide these two numbers and you find that US accounts for 36% of global Android shipments. This is the complete opposite of the author’s statement.
The author needs to understand that Android is driven by low-cost handset volumes, made by vendors such as ZTE (now the global top 5 handset vendor in terms of unit volume – go google it if you haven’t heard of it), and for emerging markets such as China, India and Southeast Asia. This is where Android is enjoying its most success, a completely different segment from Apple. Nothing wrong with that btw, but the author doesn’t even seem to realize this basic fact about Android.

You are amazing… 400k new contracts in a contract is shocking your socks off? Perhaps you should direct your math toward basics… what’s the population of the US? About 250-275 million? Right, VZW has 90+ million wireless subscribers, ATT has 90+ million, Sprint about 50 million and T-Mobile 35 million. What do the upper end add up? 265 million. And you think they should get “millions” of new contracts every quarter? Many/most have already renewed at ATT and every brand has it’s max capacity to attract customers. Perhaps if you let go of your excitement and breathe a little easy, you will understand that ATT got it’s most out of the iPhone brand, built it’s customer base to overtake VZW.

Geez, you so love to just interpret data to suit your preconceived notions, don’t it?

Your first paragraph contains some interesting speculation, but ignores the fact that in the 3rd quarter, 40% of preexisting customers who activated a smartphone activated a non-Apple one, and most of the ones who activated an Apple one were upgrading from iPhone 3 to iPhone 4. That indicates a certain amount of saturation — any iPhone 3 user who really wanted to jump ship would be happy to keep using their iPhone 3 and not incur a new contract.

You must be new here if you think your second paragraph adds any real new information to the discussion.

The author needs to understand that Android is driven by low-cost handset volumes, made by vendors such as ZTE … Nothing wrong with that btw, but the author doesn’t even seem to realize this basic fact about Android.

While Eric’s 4:1 is a bit optimistic (probably more like 2.5 or 3:1) and was originally written before the Canalys press release, this statement here shows that you don’t understand what Eric understands. Eric was predicting back in Feb or March of last year that Android was going to take off precisely because of the cost.

> Clearly right now Apple continues to run an extremely profitable iPhone business.

Yes, but do you have anything new to add to the conversation?

> Its like Eric writing “Shell is abandoning Toyota for Ford”.

I don’t remember ever being able to go into a Shell station and buy a Toyota. I certainly don’t remember Shell ever offering to finance a Toyota for me. Maybe I’m going to the wrong Shell station. Or maybe your analogy is just fucked up.

Shoot, I barely remember going into a Shell station and having somebody pump my gas for me.

> Don’t approach issues with “the successful option is Open Source, now what was the question”. Open Source is good, close source is good – living in a system where both can flourish is great.

The primary issue here is that Apple’s walled garden is evil. It’s not just closed source; it’s closed everything. Some antidote was needed to keep this from turning into another PC fiasco. Google’s solution is absolutely great — Linux will shortly run (if it isn’t already running) on more end-user computers (including cellphones and touchpads) than any other OS.

> AT&T is not aligned to any handset OS, their business is to sell minutes of data and voice.

BTW, if you had been reading this blog for any length of time, one of the overarching themes is that this is the business AT&T and the other carriers need to be relegated to, and Android is helping to to drag them there, but the carriers are kicking and screaming every inch of the way.

It will help when phones are so cheap that nobody in their right mind would get locked into a contract just to have a nice phone.

What this essentially illustrates is the need for US Carriers to stop locking themselves into a specific set of hardware. If you look at other markets such as those in Asia, Europe, etc., you will see that those carriers aren’t hurting too badly. This is mainly because they don’t get into bed with hardware manufacturers. By keeping themselves independent of the marketing whims of a handset maker, they avoid any migration from one phone to another. By letting Samsung, Nokia, etc. hash it out, they absolve themselves from that cost. If US Carriers really want to make any money, they should focus on their networks, not the phones.

“In just our first two hours, we had already sold more phones than any first day launch in our history. And, when you consider these initial orders were placed between the hours of 3 a.m. and 5 a.m., it is an incredible success story. It is gratifying to know that our customers responded so enthusiastically to this exclusive offer — designed to reward them for their loyalty.”

I love Apples approach to usability. But I hate the way Apple and its partners lock you, then nickle and dime you. It’s shocking. Customers are not stupid and hate being ripped off. Its great that Google created the Android OS to give users greater choice. I love the fact I can make my HTC Desire act like a WiFi hotspot and not be double charged for “tethering.”

> However, Linux (in the form of Android) is dominating in sheer numbers the smartphone space and may have a shot at owning the tablet space. To me, this is somewhat miraculous.

And it may eventually drive up Linux’s numbers on the desktop / laptop / server. That would be sweet. Where I work the trend is towards slices, including Microsoft slices. The Unix trend where I work is for Linux to replace other Unix OSes. I’m hoping that we will see Microsoft Servers / slices migrating to Linux slices, but that will probably depend on migration from SQL Server to Oracle — we have had both for a long time.

Eventually I hope we will see Linux desk and lap tops, but that will probably depend on Microsoft porting Office to Linux – which they should do! Especially to Android Tablet Linux and possibly iPad iOS as well. Microsoft needs to protect their Office monopoly. But then, I like Office, although I am not at all used to the new Office 2007 interface.

I guess I think Access, SQL Server, Visual Basic and .NET are cool too. I don’t really want them to go away either. Letting Oracle control Java is not what I what. I would rather Apple, Java, .NET, Python, Lua, Ruby, Perl 5 and Perl 6 to fight it out on all the platforms I want to code on including iOS. I want my Pod/Phone/Pad apps to run on iPod/iPhone/iPad and Zune/Windows Mobile/Windows Tablet and Android Content Player/Android phones/Android Tablets. And I want multiple development tracks so they compete with each other.

I even want MacOffice(?), Microsoft Office and Oracle Open Office to run on all the platforms I want to code on including iOS, for the same reasons.